Press Release on instituDE's Report "Modernizing the Turkey–EU Customs Union: Issues and Prospects"

BRUSSELS—instituDE has released a new report titled "Modernizing the Turkey–EU Customs Union: Issues and Prospects," analyzing the need to update the 1995 trade agreement between Turkey and the European Union. The report provides a comprehensive assessment of how modernization could enhance economic growth, reduce trade barriers, and strengthen Turkey’s role in EU markets while addressing key regulatory and political challenges that have hindered negotiations.

The report examines the structural weaknesses of the current Customs Union, including trade imbalances, restricted market access, and regulatory misalignments. It also highlights how modernization could unlock economic opportunities by expanding Turkey’s access to EU markets, increasing foreign direct investment, and integrating critical sectors such as agriculture, digital trade, and public procurement. However, unresolved political and legal disputes, particularly regarding Turkey’s adherence to EU governance standards, remain key obstacles to progress.

"Modernizing the Customs Union is a critical step for Turkey and the EU to strengthen economic ties in an increasingly complex global trade environment," said Mehmet Demirbaş, an international business and trade specialist and co-author of the report. "Our research highlights the economic gains of modernization while also underscoring the political and legal hurdles that must be addressed for progress to be made."

Key Findings:

• Economic impact: Full modernization of the Customs Union could increase Turkey’s GDP by 1.8%–2.5%, driven by expanded export competitiveness and reduced trade costs.
• Trade balance scenarios: Without modernization, Turkey’s trade imbalance with the EU could widen to -€20 billion by the end of 2025. A moderate modernization (10% efficiency gain) could improve the trade balance by 30%, while full modernization (20% efficiency gain) could cut Turkey’s trade deficit with the EU by 50%.
• Sectoral impact: Modernization could lead to a 95% increase in Turkey’s agricultural exports to the EU and attract €25–€35 billion in foreign direct investment (FDI) over the next decade.
• Automotive sector: With the EU imposing tariffs on Chinese electric vehicles (EVs), Turkey could emerge as a key production hub for global automakers seeking to bypass these tariffs.
• Trade agreement asymmetry: Turkey aligns with EU trade policies without gaining reciprocal market access. Modernization would allow Turkey to co-sign FTAs with EU trade partners, preventing further trade disadvantages.
• Regulatory and political challenges: The EU has linked Customs Union modernization to Turkey’s compliance with European Court of Human Rights (ECHR) rulings, including those concerning Demirtaş, Kavala, and Yalçınkaya. Lack of compliance could stall negotiations.

Recommendations:

In response to these findings, the report outlines policy recommendations for Turkey and the EU to ensure a mutually beneficial modernization process.

Recommendations for the EU:

• Accelerate negotiations for Customs Union modernization to improve trade efficiency and economic cooperation.
• Adopt a phased approach to agricultural liberalization to prevent market disruptions.
• Enhance dispute settlement mechanisms to prevent regulatory misalignments and trade imbalances.
• Ease visa restrictions for Turkish professionals to facilitate business mobility and investment.
• Support Turkey’s transition to EU regulatory standards through financial and technical assistance.

Recommendations for Turkey:

• Strengthen legal predictability by addressing property rights concerns and ensuring rule-of-law reforms.
• Align public procurement regulations with EU transparency standards to reduce favoritism.
• Implement anti-corruption measures and judicial reforms to improve investor confidence.
• Comply with ECHR rulings to demonstrate commitment to democratic governance and legal credibility.
• Pursue FTA alignment with EU trade partners to prevent economic disadvantages.

About instituDE:

instituDE is a nonprofit, nonpartisan organization dedicated to promoting diplomacy, human rights, and economic stability worldwide. We provide in-depth analysis, policy recommendations, and support to governments, organizations, and individuals committed to upholding democratic values and international security.

Contact Information:

For interviews with instituDE experts, please contact us at info@institude.org.

Click here to read the full report and recommendations.